WORLD TRADE  
ORGANIZATION  TN/RL/GEN/41 
13 May 2005 
 (05-1954) 
Negotiating Group on Rules Original:   English 
 
 
FISHERIES SUBSIDIES:  PR OGRAMMES FOR DECOMMISSIONING 
OF VESSELS AND LICENCE RETIREMENT 
 
Communication from the United States  
  
 The following communication, dated 12 May 2005, is being circulated at the request of the 
Delegation of the United States..   The submitting delegation has requested that th is paper, which was submitted to the Rules 
Negotiating Group as an informal document (JOB(05)/77), also be circulated as a formal document. 
 
_______________ 
 
1. Members have made significant progress in the fisheries subsidies nego tiations to date, with 
useful discussions concerning the appropriate frame work for new disciplines.  At recent meetings, 
however, Members have generally agreed that the mo st useful way forward would be to have a more 
specific discussion of the types of fi sheries subsidies that are likely to  be addressed in new disciplines, 
without prejudice to Members’ views concerning the appropriate framework.  2. A number of Members have identified government-funded programmes for decommissioning vessels, retiring fishing licences and other possible “capacity-reducing” subsidies as warranting more 
detailed discussion in this more technical phase of the negotiations.  Members advocating a broader 
based prohibition, including the United States, have  suggested that such programmes could be a 
candidate for an exception to the prohi bition, under defined policy conditions.
1  Other Members have 
proposed that these programmes could be considered  for inclusion in a category of “permitted” 
subsidies, again subject to appropriate conditions.2 
 
3. This submission is intended as an initial contribution to Members’ understanding of the 
principal issues surrounding such capacity reducing subsidies, focusing in particular upon the United States’ experience with these programmes.    Definition
 
 
4. In the United States, as well as in other major fishing nations, past overinvestment in fisheries 
has been a key factor leading to overcapacity and overfishing, with a resulting decline in key fishery 
stocks.  Many governments, including the Un ited States, have designed programmes (known 
generally as “buybacks”) that are aimed at removing overcapacity in targeted fisheries.  For purposes 
of this discussion, the United States proposes to define buybacks as government payments to vessel 
owners for the permanent retirement of vessels or  retirement of licences from a fishery. These 
programmes may include both direct government assist ance (grants) and loans to the fishing industry 
to finance the buyback.   
                                                     
 
1  TN/RL/W/166; TN/RL/W/169. 
2  TN/RL/W/82; TN/RL/W/172. TN/RL/GEN/41 
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 Challenges and Responses
 
 5. The fisheries literature identifies a numbe r of problems that can occur in buyback 
programmes and that can lead to the return of the removed overcapacity or even an increase in 
capacity:   
 
• Latent capacity or effort
: the existence of inactive licences or unused vessels that could 
become active in the fishery after the buyb ack, as the fishery becomes more profitable; 
 
• Leakage :  the ability of vessels, gear, financial resources and human capital to move from the 
fishery subject to the buyback into other fi sheries, which may sometimes also suffer from 
overcapacity; 
 
• Capital stuffing :  the use of profits generated by a fishery after a buyback programme to 
invest in capital improvements that enhance the gear or power of remaining vessels, thereby 
potentially increasing overcapacity; 
 
• Perverse incentives :  increased effort in anticipation of compensation through a buyback 
programme.3   
 
In recent years, the United States has sought to de velop appropriate programme  conditions that would 
help address these problems.  6. Under the Sustainable Fisheries Act of 1996, buybacks are authorized only when they occur 
in conjunction with programme features designed to  prevent the replacement of fishing capacity 
removed from the targeted fishery.  A limited entry programme must be in place or be put in place concurrent with the buyback.  Such a progra mme may include a moratorium on new entrants, 
restrictions on vessel upgrades and other effort control measures that take into account the full 
potential fishing capacity of the fleet ( i.e., latent as well as active capacity).  The buybacks are 
financed through government grants or through gove rnment loans to industry, under which fishermen 
remaining in the fishery pay their competitors to withdraw their vessels or fishing licences. The Act 
authorizes establishment of industry fee systems to re pay the loans.  Under these systems, landing fees 
may be assessed on the ex-vessel value of fish ha rvested from the vessels remaining in the fishery 
until the loan is repaid with inter est.  Participation in a buyback is voluntary, but those who participate 
must comply with specified conditions:  e.g., scrapping of the bought-back vessel or other conditions 
that permanently and effectively prohibit its use in fishing, or permanent revocation of permits 
authorizing participation in the fishery.
4   
    
                                                     
 
3 Because one factor determining compensation in a buyback is a vessel or licence holder’s past 
documented fish catch (fishing history), fishermen may have incentives to increase fishing in anticipation of a 
buyback.  These incentives may be co mpounded if participants become accustomed to repeated government 
buyback efforts. 
4 Section 312(b) –(e), 16 U.S.C.  1861a(b)-(e); see, generally,  UNITED STATES NATIONAL PLAN OF 
ACTION FOR THE MANAGEMENT OF FISHING CAPACITY (August 2004) (US NPOA/Capaci ty) at 21-26, available at 
www.nmfs.noaa.gov/sfa/domes_fish/index.htm#npoa .  The US NPOA/Capacity was developed in the context of 
work in the U.N. Food and Agriculture Organization (FAO ), which resulted in the International Plan of Action 
for the Management of Fishing Capacity (IPOA/Capacity) (1999).  The IPOA/Capacity calls on member states 
to assess the state of capacity in their fisheries and to develop national plans for the management of that 
capacity.  TN/RL/GEN/41 
 Page 3 
 
 
 Case Studies from Recent US Experience  
 7. Three recent federal buyback programmes may be  particularly instructive in the context of 
this paper:  (1) the Bering Sea Pollock fishery; (2) the Pacific Coast Groundfish fishery; and (3) the 
Bering Sea and Aleutian Islands Crab fishery.  Details of these programmes are summarized in the 
Addendum.  As the case studies illustrate, in the United States grants are giving way to industry 
financing as the primary funding mechanism.
5  All three programmes were financed in large part (or, 
in the case of the Crab buyback, excl usively) by loans that will be re paid by fishermen remaining in 
the fisheries.  
8. The Bering Sea Pollock buyback (completed  in 1999) succeeded in permanently removing 
capacity from the fishery because it included significant  restrictions on new entrants.  In addition, the 
buyback was accompanied by measures to facilitate formation of a fishery cooperative, under which 
members were allocated a percentage of the total allowa ble catch in the fishery.  This system is a type 
of “dedicated access” mechanism th at helps address the fundamental problem of the “race for fish”.
6  
That is, it creates incentives for those remaining in th e fishery to behave as if they had property rights 
in the fish catch.  As a result, fish ermen can fish at their own pace, in stead of racing to harvest the fish 
before someone else does.  Conversely, there will no longer be an incentive for fishermen to fish 
faster and harder because each could catch only his share of the total.  9. The buyback programmes in the Bering Sea a nd Aleutian Islands Crab and the Pacific Coast 
Groundfish fisheries build on this experience.  Bo th include fee systems that allow fishermen 
remaining in the fishery to repay loans to buy out their competitors through assessment of fees on 
future landings.  Both contain strict controls over entry into the fisheries, including requirements to 
relinquish fishing permits or licences, fish catch  histories and the bought-back vessels’ worldwide 
fishing privileges.  In addition, both programme s link buybacks to other measures to rationalize the 
fishery (including the use of individual fishing quotas and similar dedicated access tools in the Bering 
Sea Crab fishery).
7  
 10. These features, in particular the use of indus try financing through repayment of loans by fee 
systems, help address many of the problems with  buyouts identified above.  The restrictions on any 
future use of the vessel or permit limit the possibilit y of leakage of the withdrawn capacity into other 
fisheries.  Requirements to surrender fishing history address the perverse incentives issue by 
providing that no person can use past fishing leve ls to qualify for any future permit programme 
(including individual fishing q uotas and other dedicated access schemes).  Because the cost of the 
buyback is borne by the remaining participants in the fishery, it is likely to be a “one time only” event, 
reducing or eliminating the possib ility that one unsuccessful buyback will be followed by another.  
Restrictions on the reconstruction or replacement of vessels within the fishery help to limit the 
potential for capital stuffing.  Finally, tendencies for capital stuffing or for reactivation of latent 
capacity are also reduced by the landi ng fees required to repay the loan. 
 
                                                     
 
5 See US NPOA/Capacity at 24. 
6 A dedicated access system is a form of control in which an individual fisherman, community or other 
entity is granted the privilege to catch a specified portion of the total allowable catch.  (The total allowable catch 
reflects fisheries managers’ judgment of the quantity of fish that can be harvested in a particular fishery 
consistent with sustainability.)  There are several di fferent types of dedicated access privileges, including 
cooperative schemes (as in the Bering Sea Pollock buyback), individual fishing quotas and community quotas. 
7 The use of a landings fee to repa y a government loan to buy back overcapacity has been shown to be 
theoretically equivalent to an individual fishing quota if set at the optimum level.  See US NPOA/Capacity at 21 
(“Privately funded programmes to buy out permits and/or vessels function similarly to [individual fishing 
quotas] in the fundamental sense that fishermen who remain in the fishery ‘pay ’ for capacity reduction.”) TN/RL/GEN/41 
Page 4  
 
 11. It should be mentioned that some buyback programmes may be an element in a plan to 
achieve objectives other than permanent re moval of overcapacity from the fishery, e.g., community 
relief provided after the collapse of the fishery.  While such programmes may succeed in providing 
short-term financial assistance to fishermen affected by the collapse, they ar e not designed to achieve 
capacity reductions in the long term.  We believe  that such community relief programmes are best 
analyzed as a separate subsidy category ra ther than as capacity-reducing subsidies. 
 Conclusion
 
 12. In the view of the United States, buyback and similar programmes designed to permanently 
remove overcapacity from fisheries are strong candi dates for an exception to an expanded prohibition 
of fisheries subsidies in the WTO, provided that appropriate programme conditions are attached.  The 
Negotiating Group on Rules will need to develop an understanding of such programme conditions.    
 13. The conditions developed in the recent US pr ogrammes discussed above may be instructive in 
this regard.  The US Sustainable Fisheries Act a nd other relevant US legi slation set forth general 
principles for constructing buyback programmes, whil e allowing fisheries managers the flexibility to 
develop specific requirements for particular fisheries.    TN/RL/GEN/41 
 Page 5 
 
 
 Addendum:  Examples from US Experience  
 
Bering Sea Pollock fishery 
 
 The Bering Sea Pollock fishery off of Alaska is the largest US fishery measured in terms of 
the pounds of fish caught.  The National Marine Fisheries Service (NMFS) purchased nine of 
30factory trawlers (large vessels that harvest and pr ocess fish on board) and their associated permits.  
The total cost of the buyback was approximately  $90 million, with approximately $15 million from a 
federal grant and the remaining $75 million from a g overnment loan to Alaskan Pollock fishermen.  
Eight of the nine vessels were scrapped and the ninth prohibited from fish ing in US commercial 
fishing waters.  Use of the remaining trawlers in other fisheries was also limited. 
  The buyback was also accompanied by measu res encouraging the formation of a fishing 
cooperative by the owners of the remaining 21 fact ory trawlers.  This measure helped address the 
underlying problem of the race for fish by allocating a specific amount of fish to members.  As a 
result, rather than having an incen tive to catch available fish before someone else did, members were 
able to fish at their own pace.  The fishermen re maining in the fishery caught their allocation with 
fewer vessels (voluntarily withdrawing four trawle rs), at lower cost and increased profits.  Thus, 
capacity removed through the buyback has not returned to the fishery. 
 
Pacific Coast Groundfish fishery 
 
 The Pacific Coast Groundfish buyback progra mme set a maximum amount available for the 
buyout at $46 million, of which $10 million w as funded through a grant and $36 million through a 
government loan.  Voluntary participants relinquished their fishing permits or licences, their fish catch 
histories and their vessels’ worldwide fishing privile ges.  These relinquishments were in return for 
payments in amounts determined through a bidding  process.  NMFS in July 2003 invited bids from 
fishery permit holders.  NMFS then scored each bid’s amount against the bidder’s past ex-vessel 
revenues and, in a reverse auction, accepted the bi ds whose amounts were the lowest percentages of 
the revenues.
8  Bid offers totalled $59,78 6,471, and NMFS accepted bids totalling $45,662,471 (under 
the programme’s maximum cost).  The accepted bi ds involved 91 fishing vessels as well as 239 
fishing permits and licences  
 
 NMFS held a referendum to determine whether th e remaining participants in the fishery were 
willing to accept a fee system to repay the loan. The referendum approved the fee system.  In December 2003, NMFS required all accepted bidders pe rmanently to stop all further fishing with the 
vessels and permits.  Permits were subsequently ca ncelled and measures were taken to prevent the 
vessels from fishing anywhere in the world.   
 
Bering Sea and Aleutian Islands Crab fishery 
 
 The Bering Sea and Aleutian Islands Crab  buyback programme’s maximum cost was 
$100 million consisting of a 30-year loan to be repa id by fishermen remaini ng in the fishery through 
fees on future fish landings.  Each of the six crab fisheries involved pay fees at different rates.  
Voluntary participants in the crab buyback progra mme relinquished their fishing permits and licences, 
their catch histories and their vessels’ worldwide fi shing privileges in return for a payment an amount 
determined through a bidding system.  Ultimately, through NMFS’ reverse auction procedures, fifty-
five licence holders submitted bids totalling $225,954,284.  NMFS accepted 25 bids totalling 
approximately $97.4 million (within  the maximum cost).  The accepted bids involved 25 fishing 
                                                     
 
8 Using a reverse auction (dividing the vessel’s bi d price by its actual catch revenue over a specified 
time period and accepting the lowest ratios first) ensures that the most proven capacity is bought for the lowest 
price possible .   TN/RL/GEN/41 
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 vessels as well as 62 fishing licences or permits.  NMFS allocated portions of the prospective 
$97.4 million loan to the six fisheries, subject to  approval by a referendum of permit holders on the 
fee system for repaying the loan.  The referendu m approved the fee system.  On 27 December 2004, 
NMFS began making payments to the accepted bidders to permanently stop all further fishing with 
the vessels and permits.
9  The buyback was developed in conjunction with a Crab Rationalization 
Programme including individual fishing quotas a nd allocations to designated communities and 
cooperatives.10 
  
__________ 
 
 
                                                     
 
9 For details of the process, see www.fakr.noaa.gov/sustainablefisheries/crab/faq.html.   
10 See www.fakr.noaa.gov/sustainablefisheries/crab/crfaq.htm .